Newly married with his first child on the way, Wang had hoped to move into the apartment he bought in the city of Wuhan three years ago, but his plans were derailed by China’s growing real estate crisis.
With $300,000 in debt and an apartment far from completion, the 34-year-old autoworker got fed up and decided to suspend his mortgage payments.
He is one of many homebuyers in dozens of Chinese cities who have stopped repaying their mortgage for fear that indebted and cash-strapped realtors won’t finish their homes.
“They said construction would resume soon. But no workers showed up,” the man, who only wanted to identify himself by his last name, told AFP.
A resident of the capital, Wang planned to move to Wuhan, in central China.
“It was not easy for us to buy this house. It all came from my savings. Now there is no house and we still owe two million yuan ($300,000) in mortgage payments,” he lamented.
After years of explosive growth fueled by easy access to credit, Chinese authorities launched a campaign in 2020 to rein in excessive debt.
This limited financing options for industry giants like Evergrande, which found it difficult to repay loans and restructure huge accumulated debt.
Now they face payment boycotts of the contracted mortgages and pressure from the government to deliver the houses already sold.
In Wuhan, the capital of Hubei province, buyers like Wang say they received multiple delay notices for their apartments from developer Myhome Real Estate, which had promised to deliver them by the end of 2021.
The firm said this week that it has released some frozen funds and that it expects to complete the project by the end of 2022.
Wang decided to suspend payments this month. Complaints to the city authorities, he says, have been useless. “There’s no hope in life if you keep paying like this,” he says.
– In limbo –
The “crisis of confidence” in the Chinese property market points to structural flaws, says Andrew Batson in a report by Gavekal Dragonomics.
Due to their high reliance on off-plan apartments, developers have developed a business model that exposes buyers to the risk of not seeing their houses completed, he explains.
When finance-strapped firms have halted project construction, “these risks have materialized dramatically.”
This crisis has left buyers in limbo.
“I thought it would never happen,” says a buyer from Wuhan, surnamed Hu, whose house is nearing completion.
The 25-year-old explains that his family went into debt to help him with the down payment on a three-bedroom flat in 2018, at a time when Wuhan was encouraging young people to move to the city.
“Everyone was buying property… People were competing for it,” he says.
Another young buyer, surnamed Xue, says that almost all of his salary now goes to pay rent and mortgage. “I don’t want to pay more,” laments the 24-year-old.
“It’s not that I don’t respect the law or the contracts, but this situation puts us under too much pressure,” he says.
Xue’s family advanced 800,000 yuan ($120,000) for the flat and he signed a 600,000 yuan ($90,000) loan that he has been repaying for two years without having his property yet.
These buyers in Wuhan told AFP that there have been protests in the city over projects already sold and not finished.
– Vicious circle –
According to a document called “We Need Home”, buyers from some 100 cities and some 300 different real estate projects joined the mortgage payment boycott campaign.
Many are in the Henan provincial capital, Zhengzhou, where authorities have set up a fund to help developers finish their projects.
There have also been accusations of financial mismanagement and some cities have asked banks to tighten control of deposit accounts, according to local media.
Analysts at the financial firm Nomura estimate that Chinese real estate developers have delivered only 60% of the units they sold off-plan between 2013 and 2020. The amount of outstanding mortgage loans increased considerably.
These problems were on full display last year when news broke of giant Evergrande’s trouble repaying its debt, sparking fears of a collapse of the sector that accounts for a quarter of China’s economy.
Tommy Wu, chief economist at Oxford Economics, believes that this loss of confidence in the sector will aggravate the crisis and may lead to “a vicious circle”, causing a fall in sales and house prices that, in turn, will increase the difficulties of the companies.